Malta Central Bank Statement

Author: | Published: 5 Sep 2017

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The financial services industry plays an important role
in Malta's economic development, operating on the back of a
robust regulatory and supervisory framework that promotes
financial stability. The World Economic Forum Competitiveness
Report 2016-2017 ranks Malta 16th out of 138 for soundness of
banks. Regulatory responsibilities at micro level lie with the
Malta Financial Services Authority, whereas the Central Bank of
Malta is the macroprudential authority. The Joint Financial
Stability Board strengthens co-operation between the two
institutions, ensuring implementation of the European Systemic
Risk Board's recommendations. The European Central Bank (ECB)
in its micro and macro responsibilities contributes to the
resilience and stability of the financial system.

Following the financial crisis, Basel III was implemented in
the EU in 2013. Malta transposed all EU laws into national
regulation, reinforcing domestic banks' ability to withstand
potential shocks. Overall, Maltese banks remained liquid and
profitable with robust capital ratios.

The EU is transposing further Basel III reforms. In the
first half of 2017, as Malta held the presidency of the Council
of the EU, it initiated negotiations of these reforms. A number
of milestones were reached in financial services: the proposed
regulation regarding the transitional period for mitigating the
impact of IFRS 9 on capital, given its forward-looking approach
which is likely to increase somewhat credit loss provisioning;
amendments to the large exposure framework regarding the
exemption for exposures to certain sovereign debt of member
states issued in a non-domestic EU currency; and the proposed
directive on the ranking of unsecured debt instruments in the
insolvency hierarchy. TLAC/MREL were also discussed. Sufficient
time should be given for the build-up of these buffers,
especially for countries whose banks rely on short-term deposit
funding. Malta also recognises the importance of completing the
Banking Union. Progress on the EU Commission's European Deposit
Insurance Scheme proposal was also registered.

In the course of its presidency, Malta made significant
progress on the Anti-Tax Avoidance Directive II and the Double
Taxation Dispute Resolution Mechanism, contributing to the
prevention of tax avoidance in non-EU jurisdictions and
ensuring tax certainty. It also closed the Fourth Anti-Money
Laundering Directive, which came into force on June 26
2017.

The high level of non-performing loans (NPLs) in the EU
banking sector remains a challenge. Various international
entities pronounced themselves on this issue. In Malta, banks'
asset quality continued to improve while further measures have
been taken through revised legislation requiring credit
institutions to resolve their legacy NPLs.

Cyber risks should be high on the agenda of financial
institutions and supervisors. Financial institutions need to
remain vigilant to mitigate potential cyber risks. Supervisors
should identify and measure cyber risks as part of their SREP
assessment. Furthermore, while the banking industry is
encouraged to embrace the benefits of fintech, regulatory
authorities need to implement the necessary safeguards such as
regulatory sandboxes.

While the potential effects of Brexit have been assessed to
be contained as far as Malta is concerned, Brexit also offers
challenges for the EU regulatory framework and supervision.